(CTN News) – Last month, customers pulled more than $100bn from First Republic amid wider turmoil in the banking industry, sending the California-based lender’s shares down by more than 20%.
In the first quarter, First Republic’s deposits fell by $72 billion, a decline of 40%, although large US lenders pumped $30 billion into its accounts to shore up confidence.
Despite a slight drop in deposits, withdrawals have stabilized this month at the lender. In the first quarter, its deposits declined significantly more than those of rival banks, most of which reported single-digit declines.
In New York after-hours trading, First Republic’s shares dropped as much as 20 percent before recovering to trade 18 percent lower.
As soon as markets opened, they rallied by 12 percent. More than 90 percent of the stock’s value has been lost so far this year.
According to First Republic, its uninsured deposit ratio has decreased from 68 percent to 27 percent after the withdrawals. Rival banks deposited $30bn besides that figure. During the next two months, the bank plans to cut 25 percent of its workforce. Last year, it had approximately 7,200 employees.
Furthermore, the company plans to reduce costs by cutting back on non-essential projects and activities. Privately, some Wall Street executives believe First Republic will be sold in whole or in part, and on Monday, the bank said it was exploring “strategic options” to speed up its progress.
In the first quarter, profits dropped by more than a third to $229mn, or $1.23 per share. Analysts had expected a slight improvement. However, profits from lending fell by more than 20 percent as a result of slightly more loans made.
Despite the uncertainty of recent months . . . 91% of our client relationships remain intact,” chief executive Michael Roffler said on an earnings call, during which the bank declined to answer analyst questions.
We are reshaping our balance sheet and reducing our expenses and short-term borrowings, according to Neal Holland, chief financial officer.
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Moody’s downgraded First Republic’s preferred shares last week, which pay a special dividend, but left its overall credit rating unchanged.
According to the rating agency, the bank was on a list of borrowers that are up for reevaluation and may still be downgraded.
In spite of the fact that problems at the lender have stabilised, Moody’s maintains that the bank may not be able to return to sustained profitability in the long run.
During the rise in interest rates last year, First Republic’s upper ranks were weakened by turmoil, resulting in a large increase in its paper losses in its securities portfolio, according to the Financial Times.
A medical leave of absence was granted to Jim Herbert, 79, the longtime leader of First Republic in December 2021. After a month, Hafize Gaye Erkan, who had been groomed to succeed him, left the company.
A former Goldman Sachs banker from Turkey with a PhD in risk management, Erkan served less than six months as co-chief executive and was involved in a series of interactions with other senior executives that two people described as “toxic”.